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The industry is a-changing. Here are eight seminal events that describe how.
A big deal, but a safe bet. That's one way to characterize Roche's bid to acquire Genentech. Even with the hefty price tag—and putting company culture aside—the move to lock up Genentech's powerful portfolio of oncology drugs makes a lot of sense. It's part of a growing trend that some industry watchers have characterized as a safer, more cautious approach to deal-making. It's not that companies aren't willing to shell out the cash (they have the balance sheets to do it), they just want to make sure they don't get burned.
"You see Big Pharma becoming more risk averse," says Robert Esposito, partner in KPMG's pharmaceutical transaction services. "They're incredibly disciplined right now because none of the big companies want to be known for entering into a transaction they can't justify to their shareholders, their board, or Wall Street."
Of course, that caution hasn't stunted deal-making—in fact, the weak dollar points to a growing pool of potential acquirers and more deals in the year to come. But pharmas aren't seeking any ol' deal—they're looking for the next "it" drug, and careful scouting has placed a premium on an elite set of companies with promising late-stage products. "It's a little bit like musical chairs," says Steven Burrill, CEO of Burrill & Company. "There's a limited set of opportunities, and everybody's scrambling to grab what they can."
In terms of takeovers—and Pfizer, in particular, needs one to replace Lipitor—the "catch of the county" continues to be Bristol-Myers Squibb (now even more attractive with full control of Erbitux) while Amgen remains an comely second choice. "Those companies would put Pfizer in a strong position from the perspective of both oncology and biologics, which is a major part of their long term goals," says Barbara Ryan, Deutsche Bank's Big Pharma analyst.
Aside from those prospects, most companies are looking for acquisitions with market caps in the range of $500 million to $1 billion. Here, we set out six promising companies that are indicative of the larger M&A trends, and are ripe for acquisition.
The acquisition is probable, but Bayer plays the waiting game to ensure it's profitable
In the last days of July, Onyx and its partner Bayer got word that their joint project Nexavar (sorafenib) was approved to treat liver cancer in China. For Onyx, it was a rock-star moment. After all, the company was one of the few biotechs to discover, develop, and market its own drug, forming a true partnership with Bayer. And now, with the new approval, the two partners enter the world's most lucrative market for their drug.
Liver Cancer: Underserved Disease
Nexavar is an anti-angiogenesis drug like Avastin (bevacizumab), but it inhibits several cancer growth mechanisms and comes in a pill. It has received approval in more than 70 countries to treat kidney cancer, and in more than 40 countries for liver cancer. Sutent (sunitinib), Avastin, and Torisel (temsirolimus) have all entered the kidney cancer market, but Nexavar is the only approved drug specifically for liver cancer.
China is the key market for liver cancer. Whereas the US has just 15,000 patients, China has half of the world's—nearly 350,000 new cases each year.
"The most important opportunity for Nexavar is Asia/Pacific, where hepatitis B and C and liver cancer—and they're related in an epidemiologic way—are at epidemic levels," says CEO Anthony Coles. "That's orders of magnitude larger than the US and Europe put together."
Certainly, the Chinese approval was a historic moment for the company. But even as it validates Onyx's previous course of action, it raises the question: What's next?
In the short term, the answer is easy—it's all about maximizing Nexavar. Bayer and Onyx will develop it for a variety of cancers, despite poor results earlier this year in lung cancer. And as one of the top five pharmas in China, Bayer has the muscle and the mandate to deliver on the commercial front. Here, pricing remains the wild card. England's National Institute of Clinical Health and Excellence recently shot down Nexavar, and the pill's high price may dampen acceptance elsewhere.
In the long term, according to Coles, the goal is to build a sustainable business. But how it plays out will depend on Bayer's decision to acquire—or not acquire—Onyx.
So why hasn't Bayer already made a bid? (It's not for lack of speculation.) Nexavar is promising: First quarter sales rose by 149 percent to $151.9 million. With Genentech and ImClone about to be swallowed, Nexavar is one of the most promising cancer assets out there today. And Bayer could use another blockbuster to bolster its pipeline, with only one current hopeful, the anti-clotting pill Xarelto (rivaroxaban).
Certainly, another suitor is unlikely. The Nexavar agreement contains a provision that allows Bayer to terminate Onyx's co-development and co-promotion rights if Onyx is acquired. (Bayer would continue to pay royalties, but Onyx would lose a substantial amount of revenue.) Even if Bayer plans the acquisition, it can presumably wait until it feels the time is right. Bayer's partnership on Nexavar means it doesn't need the acquisition for strategic reasons. "Bayer could buy any time they want, but I think they want to see another big indication before pulling the trigger," says Howard Liang, a Leerink Swann analyst.
Perhaps the next milestone could be further validation of the strength of the Chinese market. The numbers seem enormous, but there are still unknowns. "It could be bigger than we thought, but we don't have a proxy," Liang says.
TRENDWATCH: MICHAEL LATWIS, analyst for Decision Resources: "We will see a number of bigger companies buying their partners just to improve the profitability of their underlying portfolios."
Diagnostics as bridge to personalized medicine
Few things in life are 100 percent. But in June, genetics analysis provider Sequenom offered two: Results from a study showing perfect accuracy of its prenatal test for Down's syndrome and—upon releasing the news to the market—a 100 percent gain in the company's stock price.
The stock's spike is not surprising. Sequenom's test appears to be more sensitive, safer, and cheaper than existing technologies. Currently, prenatal testing for Down's syndrome is done by amniocentesis or chorionic villus sampling, both invasive procedures that can cause miscarriage. These tests only identify 70 to 90 percent of samples with Down's syndrome (with 5 percent false positives). Sequenom's T21 test, which can be done as a simple blood test on the mother, correctly identified 10 Down's syndrome samples from the 201 tested samples, with no false positives.
The new test fits into an already established market—which still has room to grow. The American College of Obstetricians and Gynecologists recommends testing all pregnant US women for Down's. But today, only 2.8 million out of 4.2 million pregnant women get the test, says CEO Harry Stylli. If you add in emerging countries, Stylli says the global market for Down's testing may be as large as $8 billion.
"Our opportunity is to educate clinicians, and we've already begun that process," says Stylli. "But the most potent form of education is going to be the clinical validation studies that we're embarking on." The company plans to initiate a 10,000-patient trial for the T21 Down's syndrome test.
The industry may view these sorts of tests as outside the pharma realm, but it fits the bill for companies searching for adjacent markets and a broader arena to play in. Sequenom also acts as a CRO for genetic research, which can help create a more exacting R&D. "It can make R&D a little bit less like dart-throwing," says Miller Tabak's Les Fundleyter. "These companies are the safest of the safe."
With genetic analysis as its core competency, Sequenom's broader set of tools and services make it an attractive target, because an acquirer can use these capabilities to help translate science into personalized medicine. (The company has also licensed an early-stage but very exciting technology that it hopes will allow whole-genome sequencing for $1,000.)
There are signs that personalized medicine is getting closer. The US recently passed legislation banning discrimination based on genetic information. Meanwhile, pharmacy-benefit manager Medco is working with FDA on the use of genetic tests to understand how individual patients respond to different treatments, and the European Commission has demanded more pharmacoeconomic value in treating specific patient types. In 2008, for the first time, it took the step of approving a drug (Amgen's bowel cancer drug Vectibix) only for a specific genetic variation, determined by a predictive test.
This means Sequenom may be attractive to, say, Roche, which clearly understands the importance of companion diagnostics (witness the Ventana acquisition), or to larger diagnostics firms like Invitrogen, which is seeking deals to bolster its portfolio. As for Stylli, he says he designed Sequenom to work as a stand-alone biz or as a piece of a larger company. "But that couldn't happen today," he says. "We still have a lot of mileage to cover."
Glen Giovannetti, global biotech leader, Ernst & Young: "There's been an awful lot of M&A in diagnostics, and that will continue. As more of this technology is introduced, it's going to force a dialogue on where the value is."
Acquisitions to bolster therapeutic franchises
Growing up, Ron Cohen had two separate but equal passions: acting and medicine. At first, he tried to pursue both. He went to Columbia, the only med school with a full-time dramatics group, and during his residency performed in a community production of TheFantasticks. Ultimately, though, he decided to stick with medicine, figuring that the path forward would be easier—and his parents happier.
After medical school, and early on in the biotech revolution, Cohen decided to join a startup biotech that would come to be called Advanced Tissue Sciences. When he told his parents the news about this new career—that the company he joined was run by some friends of friends and funded by a dentist in Albany—his father, a neurologist himself, had a change of heart. "Son," he asked, "Are you sure you don't want to reconsider a career in acting?"
Indeed, Cohen's life—like the lives of many biotech entrepreneurs—hasn't been easy. He helped take Advanced Tissue Sciences public and get the company's skin drug into the clinic; then he founded Acorda on his own dime. He spent the next 13 years raising money and pushing the lead candidate, fampridine-SR, through clinical trials.
But now, at long last, Acorda has a shot at the big time. The results of a recently completed Phase III study confirmed fampridine-SR's ability to improve walking in multiple sclerosis (MS) patients. Because about half of all MS patients require assistance in walking within 15 years of diagnosis, this is a major unmet medical need. The drug works by enhancing the ability of nerves to conduct electrical signals, and some 42.9 percent of patients taking fampridine improved their walking speed, compared with 9.3 percent taking placebo.
The company is ripe for acquisition by an MS player looking to bolster its franchise, according to Eric Schmidt, a managing director and senior research analyst for Cowen and Company. It's an attractive acquisition that could offer some much-needed revenue. Drugs that mitigate the effects of MS all have blockbuster potential of more than $1 billion in annual sales, reports BioHealth Investor. (Acorda partners with Elan on an aspect of drug delivery.)
The company markets a $13 million drug, Zanaflex (tizanidine), to treat spasticity and, in addition to its lead candidate, has three other molecules of interest. Cohen says he expects two compounds to start human clinical trials by next year, while the third, although least far along, shows potential to grow new nerve connections back after spinal cord and brain injuries. "That's really what I dreamed about when I first started the company," says Cohen.
Acorda expects to file an NDA for fampridine-SR in the first quarter of 2009. Will it be the break Cohen has been looking for, or are the study results merely Acorda's 15 minutes of fame? Stay tuned to see if the stock will shine, or if it will be curtains for the company.
TRENDWATCH: Steven Burrill, CEO of Burrill & Company: "There are lots of specialized companies out there. And as Big Pharma tries to build out some of their franchises, these companies become the only places to go."
A bolt-on oncology pipeline
With a focused oncology pipeline, Cougar Biotechnology finds itself out in front with some promising molecules that could alter the cancer treatment paradigm. Skeptics caution against the hype that's surrounded its lead compound abiraterone (media have called it the next prostate cancer wonder drug), but for those willing to take a gamble could have a shot at the glory, even with additional therapies in the market.
Abiraterone is a small-molecule drug that inhibits the production of testosterone in all types of tissue—not just the testicles—through the androgen receptor, which moderates prostate cell growth. Small studies presented at ASCO and in the Journal of Clinical Oncology show that 48 percent of patients experienced at least a 50 percent decline in prostate specific antigen (PSA) levels, a marker of the disease, and 17 percent experienced PSA decreases of more than 90 percent.
The drug has recently entered Phase III testing—where trials are expected to enroll like "wildfire." If all goes well, the company could submit an NDA to FDA by 2011.
"The doctors have been very excited about the activity they have seen," says Liang, of Leerink Swann. "If you look at the data, it has been consistent. The large size of the market, first-in-class [status], clear unmet medical need—all the factors make the drug really striking."
Certainly, there is desperate need. The American Cancer Society estimates that in 2008 there will be about 186,320 new prostate cancer cases in the United States alone. Another 28,660 men with advanced prostate cancer, who don't respond to treatment, will die. It is these men, who have failed on Taxotere, that abiraterone could help.
Analysts say there is room for multiple drugs in the large prostate cancer market, and the most likely competition is Dendreon's immunotherapy Provenge. The promise of that vaccine, which is currently once again in Phase III trials, caused prostate cancer patients to take to the streets and protest against FDA when it requested additional data. Dendreon expects results this October. If the data are consistent with what has been seen in the past, studies will show that Provenge extends life by 3.3 months. However, abiraterone has extended life by more than two years among clinical trial subjects.
Cougar is also part of an emerging crop of companies that are developing cancer drugs based on analogs of Vitamin D—more specifically its active metabolite calcitriol—because of its ability to inhibit cell proliferation and angiogenesis, and induce differentiation and apoptosis. Specifically, it has begun to test a drug called seocalcitol for multiple myeloma and prostate cancer. It's much further down the pike, but offers up some promising science—and certainly, some competition.
TRENDWATCH: VITAMIN D As if we needed more excuses to call in sick and go to the beach. Now, new science shows the promise of Vitamin D therapeutics in treating a broad range of conditions. "Someone was telling me that their trainer at the gym was going to Miami, and not bringing any sunscreen," says Miller Tabak's Fundleyter. "The trainer said they wanted to soak up the Vitamin D—and you know when your trainer knows about Vitamin D, that's a hot area."
Small, safe investments offer solid upside to revenue
Let's face it: America has a massive addiction to pain meds. Whether it's Fentanyl or Vicodin or the "hillbilly heroin" OxyContin, people just can't seem to stop using—and abusing—prescription narcotics.
FDA has signaled that it is looking for safe, abuse-resistant pain drugs, not just drugs with more efficacy. In response, most firms have stocked their pipelines with reformulated opioids. It may not be enough. Witness how the recent FDA Advisory Committee on pain found OxyContin's reformulated doses not abuse-resistant enough, and gave a thumbs-down to Cephalon's Fentora for an expanded indication to manage pain outside of cancer—even with a RiskMAP.
But Javelin took a different tack. You see, while opiates provide users with a quick high, these drugs come with a host of undesirable side effects for patients, including constipation, nausea, and respiratory depression.
Instead, Javelin is developing an injectable version of diclofenac, a well-known NSAID that inhibits the body's ability to synthesize prostaglandins, and therefore limits inflammation and pain in the hospital setting. While it is currently in Phase III for the treatment of post-operative pain in the United States, the company already received UK market clearance to market Dyloject in October 2007. The UK's NICE found it safe, effective, and perhaps most important, worth it. NICE paid the company's asking price, and the drug is on 90 percent of UK hospital formularies, according to the company.
"The best thing we did was to complete a solid pharmaco-economic analysis," says Martin Driscoll, a board member who stepped up to serve as CEO in March. The company conducted a head-to-head study against the UK gold standard, Novartis' Voltarol, which has the same active compound but is given by slow infusion. Javelin showed that Dyloject, given through a bolus injection, saved time and $100 per patient when compared with the market heavyweight. And when compared with opiates, patients had fewer side effects, which meant shorter hospital stays and fewer hospital-borne infections like MRSA. "Now for each hospital, we're not having to discount at all," says Driscoll.
The company is also developing other compounds, including intranasal ketamine (which at least the Department of Defense thinks is interesting and kicked in $5 million for development) and intranasal morphine.
While bringing Dyloject onto a major Western market is validation, selling the drug while developing two others is draining Javelin's resources. "Moving from a development company to a commercial business is a big deal," says Driscoll. "Javelin may have bit off more than they can chew."
So now Javelin is out shopping for a Big Pharma commercialization partner interested in its pain portfolio, which the company values at $700 million. Patricia Bank, an analyst with Pacific Growth Equities, writes that a partnership or acquisition can happen even by year end. But interest may come from outside the US. With the UK's regulatory OK under its belt, Javelin plans to file Dyloject simultaneously in the rest of the big European markets, which would make it a more attractive asset to European players.
But the big prize in terms of sales still remains the United States—where there's a reflex reaction to cringe at the word "NSAID." So even though FDA has approved two diclofenac molecules in the last year, says Driscoll, US marketing approval is by no means "a slam dunk." "The Australians, FDA, and most other regulators in the world have acknowledged the benefit of NSAIDs when they're used at a minimal dose for the shortest period of time," says Juan Sanchez, an analyst for Landenburg. "But you still have the stigma."
TRENDWATCH "There's activity coming from outside the US in terms of potential acquirers," says Maik Klasen, Frost & Sullivan. "The one hurdle Big Pharma has [whether from the US or abroad] is they are looking for very solid numbers in terms of clinical data
Orphan drugs make their mark
There's something to be said for the spirit of independence. Just take Martine Rothblatt, now CEO of United Therapeutics. She has succeeded by pioneering her own path. Rothblatt was the one to invent global satellite radio, which she created along with the company Sirius. In the years that followed, she helped draft the United Nations' declaration on the human genome and human rights, wrote a book that proposes bringing peace to the Middle East by making Israel and Palestine the 51st and 52nd States, and established a nonprofit to foster personal cyberconsciousness. Oh, and her movie about a half-human, half-machine murderer should be out soon, too.
In that context, starting a pharma firm from scratch is one of the more mundane activities Rothblatt has undertaken. But to develop a drug for pulmonary arterial hypertension (PAH), a disease her daughter was diagnosed with in 1992, she knew she had to do it herself. PAH involves a tightening of blood vessels connected to the lungs, which can cause heart failure.
Rothblatt tried to drum up a cure through grants, but eventually paid $25,000 for the rights to a PAH compound shelved by GSK, which came to the market in 2002 as Remodulin (treprostinil), with an orphan drug designation. Since then, sales have exploded. UT is on track to deliver its sixth straight year of 30 percent growth.
UT has filed an NDA for Viveta, an inhaled version of Remodulin, which is currently dosed through continuous infusion. This is thought to grow the drug's sales further still by offering a more convenient dosing and additional efficacy indications. The PDUFA date is April 2009.
Certainly, the company's success puts it under the M&A microscope. Will it continue to fly solo? "UT believes it can deliver the best value to its shareholders by remaining independent and continuing the successful performance it has shown year in and year out," says Rothblatt. Of course, Genentech and Ventana didn't want to be bought either. "If the price is right," says Landenburg analyst Juan Sanchez, "Every company is for sale these days."